The Fed announced an open ended quantitative easing program focused on housing finance. Risk assets will probably rally into 2013 as growth picks up and there could be good entry points as markets consolidate their gains.
There is much debate about the transmission mechanism from quantitative easing to the real economy but there is little doubt it is meant to boost risk assets. Stocks and commodities rallied strongly in anticipation of the Fed announcement so a period of consolidation is natural. History suggests we are likely to see a second leg of strong performance and weakness in coming months is most likely a buying opportunity.
We are neutral on risk assets but this stance masks a conflict between strongly supportive technical factors and policy versus a persistently weak trend in macro data. Either the rally in stocks over the summer foreshadows an upturn in the business cycle or current market levels are at risk as doubts over the effectiveness of the Fed’s quantitative easing take hold.
LEAD INDICATORS IN FOCUS
- Our global inflation scorecard is pointing downwards.
- However, in recent years the impact of quantitative easing on commodity prices has meant a pick up in growth has gone hand in hand with an immediate increase in inflationary pressures.
- Stock markets have run ahead of fundamentals with our global growth scorecard still negative.
CURRENT ASSET ALLOCATION POSITIONING
- Although we are underweight equities, we are overweight commodities and REITS, which leaves us with a neutral position on risk assets. This stance masks a conflict between strongly supportive technical factors and policy, versus a persistently weak trend in macro data.
- Either the rally in stocks over the summer foreshadows an upturn in the business cycle or current market levels are at risk as doubts over the effectiveness of the Fed’s quantitative easing take hold.
Trevor Greetham joined Fidelity in January 2006. He is Director of Asset Allocation and in addition to managing funds, Trevor is a member of Fidelity’s Asset Allocation Group. Prior to joining Fidelity, he spent ten years at Merrill Lynch, where he was Director of Asset Allocation. Trevor began his career with UK life insurer Provident Mutual. He holds an MA in Mathematics from Cambridge University and is a qualified actuary.
This document is for investment professionals only and should not be relied upon by private investors. It must not be reproduced or circulated without prior permission. This communication is not directed at, and must not be acted upon by persons inside the United States and is otherwise only directed at persons residing in jurisdictions where the relevant funds are authorised for distribution or where no such authorisation is required. Fidelity/ Fidelity International means FIL Limited, and its subsidiary companies. Unless otherwise stated, all views are those of the Fidelity organisation. Investors should note that the views expressed may no longer be current and may have already been acted upon by Fidelity. The research and analysis used in this material is gathered by Fidelity for its use as an Investment Manager and may have already been acted upon for its own purposes. Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only. Fidelity only offers information on its own products and services and does not provide investment advice based on individual circumstances. Fidelity, Fidelity Worldwide Investment and the Fidelity Worldwide Investment and F symbol are trademarks of FIL Limited. Past performance is not a reliable indicator of future results. The value of investments and the income from them can go down as well as up and investors may not get back the amount invested. Fidelity’s legal representative in Switzerland is BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich. Paying agent for Switzerland is BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich. Malta: Growth Investments Limited is licensed by the MFSA. Fidelity Funds is promoted in Malta by Growth Investments Ltd in terms of the EU UCITS Directive and Legal Notices 207 ad 309 of 2004. The Fund is regulated in Luxembourg by the Commission de Surveillance du Secteur Financier. Issued by FIL Investments International (registered in England and Wales), authorised and regulated in the UK by the Financial Services Authority. IC12/73